Your age and whether you work or not will have a fair impact on what kind of share market investments you should be interested in.
For example if you're in retirement and no longer have any income outside investments you'll probably prefer dividend shares, however, if you're still say 10 years away from retirement it makes sense to look for growth shares.
One of the keys to finding good growth shares as an amateur or 'mum and dad' investor not looking to time the market is to identify companies that have the ability to keep grow their earnings say 10 years or more into the future.
That way your investments enjoy the power of compound returns and you're likely to ride out the risk of paying too much for the shares up front.
Of course the hard part is finding those companies that will still be delivering growth in say 5 to 10 years or more, as the future over a 6 month to 1 year period is hard enough to predict. Let alone 10 years.
However, below are four companies that may have what it takes to deliver investors huge returns from here.
Tesla Inc. – (NASDAQ: TSLA) shares have fallen by around one third over the last six months to hit US$195.20 today as poor sentiment, the US/ China trade war, and weaker-than-expected sales hit the share price. However, for investors prepared to take on more risk this may be a golden opportunity to own shares in what may be the world's most disruptive company with a very long growth runway ahead of it yet. After all, in 10 years' time Tesla could be one of the largest companies in the world.
Xero Limited (ASX: XRO) is a cloud accounting platform that recently reported more strong subscriber growth globally and a $1.6 million half year profit. This is another business that is starting to exhibit the benefits of compound returns as its recurring revenue or software-as-a-service business model tips it into profitability despite it still investing heavily for growth. Its valuation of A$8.4 billion still compares favourably to larger US rival Intuit at US$62.4 billion for example, and shows what a large addressable market Xero operates in.
StoneCo (NASDAQ: STCO) is another fintech player in the small business space but in the payments processing space similar to Jack Dorsey's Square Inc. The Brazil-based operator is already profitable and growing like nuts with global ambitions, it even reportedly had Warren Buffett's Berkshire Hathaway take a stake in the business not long after its 2018 IPO. As such it's a growth business I am interested in.
Cochlear Ltd (ASX: COH) looks a little expensive for now, but is one of only a handful of ASX businesses that look good bets to still be growing at nice rates over say the next 5 to 10 years. This is because its patented technology, wide moat, market-leading products, and large addressable markets mean it looks well positioned to keep growing despite the ever present threats of competition or operating blunders hurting the business.
Foolish takeaway
The overall point to remember as an investor is that the future 5 to 10 years out is hard to predict, but if my assumptions are correct then Cochlear, Tesla, or Xero, are the kind of business that may make excellent investments for your children or grandchildren. StoneCo is more of a speculative bet that needs some more research.
It's also instructive to remember that investing is not rocket science, and over the long term share prices will follow revenues, profits, and dividends higher or lower. Therefore if you are successful in identifying those companies that do well over the long term you should generate large returns and avoid accumulating excessive brokerage fees.
So the more you put company quality and time on your side, the more likely you are to achieve strong returns.
Finally, I'm also happy to report that I think one of the two businesses named below is also a strong contender to produce huge returns in the next 5 years or so. You can read on about it for FREE below….
